independent

Monday 21 April 2014

BAE to build nuclear submarine for Royal Navy

The Royal Navy's newest hunter-killer submarine HMS Astute. A £1.2 billion contract has been awarded to build the Royal Navy's new hunter-killer submarine HMS Audacious. Photo: PA

BRITISH defence contractor BAE Systems has won a £1.2bn (€1.6bn) contract to build a submarine for the Royal Navy.

Under the terms of the contract, the firm will design and manufacture the submarine HMS Audacious, the fourth of seven new nuclear-powered submarines being built for the service.

In addition, the UK Ministry of Defence committed a further £1.5bn (€1.9bn) to build the remaining three subs. The contract win was badly needed by BAE, which has been seen to be on the block since a proposed merger with the European giant EADS collapsed in October.

It has also thrown light on the controversial but lucrative defence industry.

The business is one of the biggest, if least public, industries in the world. It is also one of the most competitive on the planet and is one of the few sectors where governments acting in the national interest is not frowned upon but positively expected.

By and large, the industry is split by the Atlantic. On this side there is BAE Systems – the old British Aerospace – in the UK, EADS, and the French duo of Thales and Dassault, along with the Italian conglomerate Finmeccanica.

Projects

While they compete against each other, they also come together for certain projects. They all made contributions to the Typhoon jet fighter, which is used by all three countries as well as Germany.

The companies are big – their combined revenues are close to €90bn – but the European firms are dwarfed by their American counterparts.

Eight of the 10 biggest firms in the world are US-based. The three biggest – Lockheed Martin, Boeing and General Dynamics – post revenues of about $137bn (€105bn) a year.

As the US market is by far the biggest in the world, it has become the market every company wants to get into.

That need has stirred up regular controversy, and has led to the failure of deals worth billions of dollars.

In 2010, EADS, which is the parent of the aviation giant Airbus, set up a factory in Alabama and competed for a $35bn contract to build airborne fuel tankers for the Air Force.

Airbus was widely expected to win the bid, but it was instead awarded to Boeing, sparking accusations that the government had backed the Boeing bid even though Airbus had made a better offer.

Those same national concerns scuppered the proposed merger between BAE Systems and EADS.

The collapse was widely blamed on the various governments involved.

The British government is a major shareholder in BAE, while Germany and France own shares in EADS.

Either way, the industry will keep growing. It is up more than 15pc in the last three years, a pace that is unlikely to slow down.

Irish Independent

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